Government Operations Committee on Sept. 27th, 2016

[The Chair, Conservative, Tom Lukiwski]

Ladies and gentlemen and colleagues, I think we'll begin.

Welcome to meeting number 30 of the Standing Committee on Government Operations and Estimates. We are continuing our study of Canada Post.

As you probably are aware, ladies and gentlemen, since I'm sure you've been following the proceedings, the minister responsible for Canada Post has engaged in a fairly widespread consultation process. The first step was to establish a task force to examine the financial viability and sustainability of Canada Post. That task force has completed their work, and they have submitted their report to the minister. Our committee has also had a chance to examine that report.

The second phase of the consultation process is a cross-Canada consultation with Canadians, individuals, and organizations to talk about their views for the future of Canada Post, and that's why we're here today. Following the three-week consultation process, we will have a report drafted and submitted to Parliament before the end of this year.

We are here today to talk with all of you. The process is fairly simple, but we are under tight timelines. We're asking that opening statements be no more than five minutes long. That will allow for one round of questions from all of our committee members. Then we'll go on to the next set of witnesses. If I can get all of you to please abide by our tight timelines, I would appreciate it very much.

That said, my list has Mr. Hinds as our first intervenor.

Mr. Hinds, welcome. Your five-minute opening statement, please.

[John Hinds, President and Chief Executive Officer, Newspapers Canada]

Thank you.

My name is John Hinds, and I'm the CEO of Newspapers Canada. We represent over 850 daily, weekly, community, and ethnocultural papers from coast to coast to coast.

Newspapers and Canada Post have a unique relationship. We are not only customers but also competitors. As a consequence of that dynamic, we hope to see two major outcomes coming out of the current review of Canada Post that go beyond the narrow issue of fiscal sustainability.

First, we want to see a renewed public service mandate from Canada Post, particularly for rural and remote communities.

The second is that in a quest to ensure a sustainable business model, we don't want to see Canada Post given carte blanche to create havoc for private business. An outcome that elevates the fiscal sustainability of Canada Post over other considerations would, in our opinion, not sit well.

Newspapers and Canada Post are the two major distributors of flyers in Canada, and that relationship has caused a lot of friction over the years. In the last mandate review of Canada Post, the government of the day forced Canada Post to restrict its flyer business to delivery by only its own workforce. As the volume of other mails has shrunk, Canada Post has renewed its focus on the flyer business, which is creating even more friction.

The major issue for newspapers is that Canada Post is using its statutory monopoly position to unfairly compete with private industry. Canada Post has a monopoly over access to the mailboxes in all multi-family residential units in the country. We believe that reality gives it an unfair and unregulated competitive advantage over Canada's newspapers.

This competition is made more acute when Canada Post is also delivering to the customer the newspaper that contains the flyers. Traditionally, almost all community newspapers were delivered by the post office. Over the past few decades, however, this has changed as newspapers have developed alternative delivery systems that are more cost effective and allow for quicker delivery.

In urban and suburban Canada, almost all newspapers are no longer delivered by Canada Post, but at least half the community newspapers in Canada—over 400—and those serving the smallest communities still use the post office for all or part of their delivery. These newspapers are almost all located in rural and remote areas of Canada, where there is no alternative to Canada Post.

Unfortunately, the experience of those newspapers with Canada Post is not a positive one. The major fault lines rest on the principles of service and price.

Over the last few years, for example, postal rates for mailing newspapers have gone up faster than any other business expense. In many cases, that amount represents a spike of over 10% a year.

As we know, Canada Post is a monopoly and not subject to oversight by a regulator. The rates are set by the corporation, and customers really have no choice but to pay the fees. Community newspapers are well read, regardless of whether they employ a paid or free circulation model. These circumstances have led to a pattern of unequal treatment that has disproportionately affected the ability of small community newspapers to maximize their audience reach.

Canada Post offers a publications mail service to periodicals, including newspapers; however, free circulation community newspapers intended for all households are unable to access this service. Instead, they're required to use the neighbourhood mail service, formerly unaddressed ad mail, the same mail service used by businesses to deliver flyers and other advertising mail. As a result, exemptions to the rules have had to be introduced for community newspapers, and these rules are inconsistently applied.

That's just the tip of the iceberg. Many other stress points exist in the imbalanced relationship between newspapers and Canada Post, including, for example, prioritization of flyer delivery over newspaper delivery; refusal to deliver a community newspaper despite its exemption from the consumer choice program; inconsistent delivery, including late delivery—up to three and four weeks in many cases—or simply not delivering the paper at all; and, an inconsistent application of rules, often leaving newspapers dependent on the goodwill of the local Canada Post employee.

Moreover, a key component of the new postal transformation initiative was the decision to do away with local sorting of mail in favour of a more centralized and regional approach. In practice, this strategy has been fraught with glitches that have prevented citizens from reading their local newspaper in a timely way. We've heard multiple examples from our members of mail deposited in one location and intended for an adjacent town now being sent to a major centre for sorting, an unnecessary detour of hundreds of kilometres, often in winter, which results in long delays.

Canadian community newspapers could share story after story describing their frustration with Canada Post and its unwillingness to even consider how these service changes, which often occur without meaningful consultation, have a real-world impact. There's little accountability. As we've seen, Canada Post sets its own service rates and standards, and these standards do not account for the reader's need to have news in a timely fashion. Even then, there's no ability to hold them to those standards.

Readers want to receive their newspaper in a timely manner, and in many cases this simply doesn't happen. Clearly, some degree of independent oversight is required. Indeed, we believe that the creation of a separate postal regulator is necessary. Of course, this has proved very effective in both the U.K. and the United States.

As you see, newspapers have significant issues with Canada Post, issues that could be made even worse if a public service mandate and the interests of private business are sacrificed on the altar of fiscal sustainability. We trust that you will keep this in mind as you continue your work.

Thank you.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much, sir.

Mr. Holmes, please, for five minutes.

[Matthew Holmes, President and Chief Executive Officer, Magazines Canada]

Thank you, Mr. Chair and distinguished members.

My name is Matthew Holmes. I'm the president and CEO of Magazines Canada, and we take great interest in the subject of Canada Post, as you can imagine. Magazines and papers, along with parcels, are probably some of the few items remaining that Canadians look forward to receiving in the post.

We are the national trade association representing cultural, consumer, and business magazine titles, of which there are about 2,000 in the country. This is a $2-billion-per-year sector, directly creating tens of thousands of high-quality knowledge economy jobs across all regions and across all platforms, print and digital.

The latest data shows that 70% of Canadians read magazines, and this is true and consistent across all age groups, including youth. Notably, 92% of those magazine readers are reading some combination of print—either print only or print and digital—so the Canadian reader is still very dedicated to the print platform.

I imagine that many here in the room and on the committee were taking in some of the presidential debate last night. The magazine market in Canada is very similar, in that it's almost impossible to avoid the content from the United States. Because of that, the Canadian marketplace has developed a unique situation, and we've become famous in the magazine world for that. Our base of about 80% for Canadian magazines is through subscription rather than newsstand sales. Subscription is a core element of the Canadian magazine. As you can imagine, subscription is dependent on a viable postal delivery system.

At the same time that the Minister of Canadian Heritage is conducting a major consultation on culture and how to better distribute and showcase Canadian content, my members are facing a financial and logistical bottleneck in their principal means of reaching their clientele. Most certainly, digital content consumption is on the rise, and Canada's magazines are drawing large and growing audiences in digital formats across all channels; however, the base still is dedicated to print.

We would argue that during your review it's critical not to lose sight of Canada Post's mandate to deliver a public service to all Canadians, no matter where they live in Canada. We would note that the independent task force's own public opinion research bears this out. Importantly, in all regions, Canadians believe that Canada will always need a postal service owned and operated as a public service.

This is also reflected in discussions with key stakeholders, including rural youth, and it can quickly go beyond just a rural consideration. I'm sure the member for St. John's East can appreciate that the people of Newfoundland, after the National Post and The Globe and Mail cancelled their newspapers in Newfoundland, now receive their news from the rest of the country through magazines delivered by Canada Post or through online means. That economic argument, coupled with our ample geography, can suddenly leave us as a nation of solitudes.

For this reason, we would speak against the price-based strategy, or what's often called “distance-related pricing”. Canada Post has already experimented with this in its publications mail clients, and magazines in particular, and it's had a devastating effect on our members. We find the rates punitive and lacking a rationale.

Furthermore, as the task force discussion paper notes, “While mail revenues can be propped up over the short term by increasing prices, over the longer term, such a strategy” will only accelerate consumer shifts away from the service. We're clearly seeing that in magazines, which are pulling out of Canada Post at a rate that is quicker than any attrition in the wider industry.

On top of this is an unfortunate irony: many of the larger-volume Canadian magazines are getting hit the hardest in terms of rate increases. Strangely, these are the same customers who provide Canada Post with pre-sorted bundles that bypass almost all Canada Post operational channels—and thus operational expenses—and are placed almost directly in the hands of neighbourhood letter carriers.

In these cases, Canadian magazine publishers have already internalized and absorbed a considerable share of pre-delivery costs of the product, yet there is no pricing relief or incentive for this practice. Magazines, in essence, are being punished for helping to improve Canada Post's operational flow and productivity. For this reason, Magazines Canada has convened a national group of alternative delivery providers to study and conceptualize how we might circumvent this service for most of our needs, though we wish it were not so.

In conclusion, Mr. Chair, the Government of Canada has always maintained policies concerning the creation and distribution of Canadian content and cultural content to Canadians, a mandate perhaps no more compelling than now, as we prepare for the country's sesquicentennial next year. What the magazine sector would look for are stable long-term outlooks and pricing contracts that we can rely on and base our business upon.

Thank you.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much, sir.

Mr. Kelly, for five minutes.

[Daniel Kelly, President, Chief Executive Officer and Chair, Canadian Federation of Independent Business]

Thank you very much.

Just as a quick reminder, the Canadian Federation of Independent Business, which I represent, is made up of 109,000 small and medium-sized firms, all of them independently owned and operated and based across the country. Obviously, they have a very important stake in the discussions about the future of Canada Post, and we congratulate the committee for its work.

I've put together a small slide deck of some data that we've collected from our members on this front.

I want to start by saying that 91% of small firms view Canada Post as important. They view it as an important service that they have access to in Canada, so we don't believe that Canada Post's core mandate is done and that there isn't a future for the corporation. In fact, we think very much the opposite, as 40% of small firms send 50 or more pieces of letter mail per month, and 50% receive 50 or more pieces of letter mail per month. Those are SMEs across Canada.

It often surprises people that when we dissect that a little and look at what small businesses are using Canada Post for, payments are still very high on that list. People who have moved to online forms of payment are often surprised that small business B2B transactions are highly dominated by invoices in the mail and by cheques coming back in the mail as a form of payment. If you're paying an invoice of $10,000, you're unlikely to pull out a credit card to do that. You're likely to send a business cheque.

For small and medium-sized firms, 50% of purchases and 42% of sales come through cheques in the mail. Of course, during the recent debate over the strike and lockout, even though there wasn't necessarily a disruption, many small businesses took alternative measures in advance of that because they were so afraid of having money tied up in the mail.

Package delivery still remains a very dominant and growing use among small and medium-sized firms. I'll come to that in a minute.

Why do small firms use Canada Post? They use it because of accessibility, convenience, and cost. Those are the primary reasons why Canada Post is chosen by SMEs.

Again, when we looked at whether usage was increasing or decreasing, it is absolutely true that usage was decreasing. Forty-two per cent said that they have decreased their usage of Canada Post over the last three years. However, a growing number of small firms are moving online, making Canada Post's package delivery a pretty important option for them to get their products to market, especially low-priced products. If you're sending something valued at hundreds of dollars, you may look at a private courier service, but Canada Post is very dominant if somebody is sending an item worth $2 or $3.

We do believe that Canada Post maintains an important mandate, and our main message to the committee is to ensure that it is sustainable and that costs are watched carefully. There is an awful lot in the work the review committee has done already that supports these very measures.

When we surveyed our members as to some of the options that have been discussed with regard to reducing some of the cost pressures at Canada Post, a large number of small firms viewed freezing wages as being very important. I'll point to some of our Wage Watch data that shows Canada Post workers earn dramatically more than their private sector counterparts. When benefits and pensions are included, that moves to almost a 40% wage advantage for Canada Post workers over private sector norms. Freezing wages was number one on the list.

As well, making the shift to community mailboxes was generally supported by small firms. Moving delivery to perhaps three days a week was also something that was supported in broad terms. Involving more of the private sector in aspects of Canada Post, particularly at the front end, such as moving toward more private postal franchises, was also supported.

I will say, though, that it may surprise you to hear this from the Canadian Federation of Independent Business, but our members were not supportive of outright privatization. That was not viewed as a step that small firms overall were supportive of at this time.

On expanding Canada Post's mandate to banking, I have to say that there was overall opposition to that proposal, despite the fact that a lot of small firms wish there were more competition in Canada's banking sector.

Again, here are our main messages.

Addressing unsustainable pension liabilities is absolutely key to fixing the problems. Addressing overall labour costs more to private sector norms is key to the future of Canada Post. Letter mail hikes should be reconsidered or limited, because that has been hitting a lot of small firms hard, and we ask you to pay careful attention to that. Canada Post's monopoly over domestic letter mail should perhaps be reconsidered, which is a last recommendation from us.

Thanks so much.

[The Chair, Conservative, Tom Lukiwski]

Thank you so much, sir.

Our final intervenor, at least as our witnesses go, is Mr. Bartlett, please, for five minutes.

[Kristi Kanitz, Board Chair, National Association of Major Mail Users]

Mr. Chair, I'm going to start. I'm Kristi Kanitz from NAMMU. I'm the board chair. I'll do a quick introduction and then pass it over to Patrick.

NAMMU is the sole voice of the mail industry in Canada. It's a national non-profit that has been representing the industry for over 30 years. We represent mailers, as well as service, paper, envelopes, software, and equipment providers. Our mission is to ensure that Canadians and Canadian businesses have access to a reliable, affordable, effective, and sustainable postal service. Our key focus is on working closely with Canada Post on products, price, process, and partnership. We do enjoy a cordial and productive relationship with Canada Post, including consultations on their products and services.

The mailing industry in Canada is diverse and economically vital. It represents approximately $88 billion per year, which is about 5% of Canada's total GDP. It represents 80% to 90% of Canada Post's revenues. These are the companies that are generating those revenues for Canada Post on an annual basis. It employs directly and indirectly more than 800,000 Canadians.

Mail plays a crucial role in the commerce of Canada, facilitating the presentment of bills, acquisition and the growth of the customer base, and the fulfillment of orders. It includes SMEs, as well as large enterprises and multinational corporations, and ranges from traditional manufacturing to innovative data-driven solutions.

Patrick.

[Patrick Bartlett, Executive Director, National Association of Major Mail Users]

Thank you.

First of all, we'd like to thank the task force for a wonderful report. We think it helped to establish a strong fact base from which informed decisions can be made about the future of Canada Post.

First, NAMMU supports the continued rollout of community mailboxes. We find it an effective way to deliver mail, and we found no evidence that it in any way diminishes the channel or makes it less competitive. We believe that Canada Post has to be more sensitive to the needs of Canadians and to communities that have special problems with mailboxes. Generally speaking, we support the continued move forward of the community mailbox program as an important cost control item.

We applaud the report's suggestion that the rural moratorium be updated. The removal of areas such as Brampton or Richmond Hill from the rural moratorium makes a whole lot of sense. Times have changed.

We also support moving more corporate retail to franchises.

We'd like to chat a bit about the rural post offices in general. I just had the opportunity to travel in my home province, Newfoundland and Labrador, and was in communities such as Bell Island, Trinity, and Woody Point. I saw all the local post offices there, with the Canadian flag and the community name, and it was a wonderful thing to see. We don't believe that mailers should be the sole provider or the sole payer to provide those locations and those community services at that level. There should be, as in other programs that Canada Post does—such as parliamentary mail—a subsidy to Canada Post to pay for those. That's one of our strong recommendations.

NAMMU, the National Association of Major Mail Users, doesn't support alternate day delivery, as we believe that will damage the competitiveness of the channel and make us more vulnerable to competitive inroads from digital.

One of the exceptions that we took to the report was the reference to advertising mail as “junk mail”. We think that's an unfortunate term, as was the suggestion that it isn't green or environmentally friendly. Canadians value their advertising mail and use it. If not, businesses wouldn't be using it. The mail-and-paper industry in Canada has a great green record in terms of maintaining forests, and the growth of forests has continued.

We support the realignment of Canada Post to remain commercially self-sufficient. We also support the establishment of a regulator. We would require and recommend the establishment of consultative and oversight committees to work in areas such as partnering, competitive products, go-to-market strategy, and pricing.

Last, on labour disruption uncertainty, we've just been through a terrible summer in which people lost jobs and were laid off because of the uncertainty in the industry. We encourage government to work with the parties. We have two years to come to a resolution so that we don't face this problem in two years.

Thank you very much.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Thanks to all of you for the economy of words you've exhibited.

We'll go now to questions from our committee members.

First up for seven minutes is Mr. Whalen.

[Nick Whalen, Liberal, St. John's East, NL]

Thank you very much, Mr. Chair.

I'd like to thank all of you for coming today. It's great to hear a diversity of voices, especially from the business community.

In reviewing the task force report, we've heard different sides. We've heard from a lot of people who are in favour and a lot who are against it. We've heard from people who like some aspects more than others. I want to focus a bit on what Mr. Bartlett said in terms of damage done to the value of the product by moving to alternate-day delivery.

Can you elaborate a little on that for us?

[Patrick Bartlett]

Yes. We talked to members about alternate-day delivery. Having control of when your product is going to be delivered to the door, whether it's advertising mail or an invoice or a magazine, along with the notion of having a fair bit of certainty of when that will be and being able to plan so that it arrives on a Thursday, a Friday, or a Monday, is a very important aspect.

We also believe that alternate-day delivery will damage the parcel business. The report made it very clear that Canada Post is effective in parcels because it's part of the overall infrastructure and the network that supports mail.

[Nick Whalen, Liberal, St. John's East, NL]

In terms of the newspapers and magazines, do you not feel that same-day delivery is important in your industries?

[John Hinds]

No. I think the issue we have—again, we're dealing with rural and remote Canada, particularly for delivery of newspapers—is really timely delivery. I think that it wouldn't be the issue so much.... Canada Post now gives a three-day to five-day window, which they often don't meet. If there were alternate-day delivery, it was delivered when it was supposed to be, and there was a sort of guarantee of that, I think alternate-day delivery might work.

I think one of the particular challenges we have—again, with newspapers versus flyers—is that they will deliver flyers before they deliver newspapers, and if they have that much more mail—

[Nick Whalen, Liberal, St. John's East, NL]

It's really a service charter issue. Maybe businesses should have part of the service charter devoted to that.

[John Hinds]

Yes.

[Matthew Holmes]

If I could add to that, at Magazines Canada, we would be very much against alternate-day delivery. For our members, the unreliability of the service is already compounding and expediting the desire to move away from Canada Post. With weekly magazines still very current in Canada, we rely on a timely delivery at a certain time of the week. That would make it difficult.

[Patrick Bartlett]

I'd also like to add that we think alternate-day delivery adds complexity to the system. We will see on-time performance suffer as a result of that.

[Nick Whalen, Liberal, St. John's East, NL]

We heard yesterday both from people in the business and online shopping world and from the union that they'd like to see expanded hours of delivery, such as evening delivery and weekend delivery.

Mr. Kelly, maybe you can start for us. Do you think your members would take advantage of such a service?

Maybe I can also hear from the other panel members as to whether there is an appetite for evening and weekend delivery.

[Daniel Kelly]

I do. I think that Canada Post's mandate is not dead but is changing. I think the corporation has been making some changes along the way, but others are necessary.

I believe that if Canada Post were to shift to alternate-day delivery, it would potentially create some opportunities for it to then offer services where it doesn't right now, and that might be expanded hours for package delivery. Especially for those who are looking at sending things in major urban networks on the same day, where they have distribution networks, that is obviously something where I think Canada Post could play an important role and potentially grow the pie, as opposed to just watching it shrink.

[Nick Whalen, Liberal, St. John's East, NL]

Does everybody else agree with that comment or have anything further to add on additional delivery?

[Kristi Kanitz]

We can take a look at the U.S., specifically with catalogue mailers, which have Saturday delivery. Catalogue mailers have been very resistant to removing that. They aim to have their catalogues there on a Saturday so that their recipient has a chance to sit down, flip through it, and look at what they would like. That drives sales.

In Canada, there isn't as much of it with our catalogue business because we don't have that kind of ability to deliver on a Saturday. Certainly, it is a consideration.

Also, regarding the cost-effectiveness, it's much less expensive to send a catalogue in the U.S. than it is in Canada. Cost-effectiveness is very important.

Certainly, for parcels, being able to deliver around business hours when people are at work and then have to go to an alternate pick-up location the next day, it would be helpful, but in terms of catalogues....

[Nick Whalen, Liberal, St. John's East, NL]

Although only about 11% of households are serviced by these beautiful rural post offices sprinkled around the country, it's more than just rural mail service or the quality of service that's lacking. Banking services are absent and access to high-speed broadband is absent in a lot of rural communities. How do you think your members feel about expanded service offerings from a community hub, such as access to banking services and maybe white-label banking services or white-label ISPs from these hubs, these post offices throughout rural Canada.

[The Chair, Conservative, Tom Lukiwski]

We have about a minute left. Could you direct that to one of our witnesses?

[Nick Whalen, Liberal, St. John's East, NL]

I would like to hear from the Federation of Independent Business and perhaps also from the Major Mail Users.